EU ‘Fair Trade’ Directive still a threat

A year ago it looked as though this Directive was dead in the water, with a parallel proposed Sales Promotion Regulation well set for a welcome and speedy introduction. Now all that has changed.

Topic: Promotion marketing

Who: The European Commission

When: January 2003

Where: Brussels/London

What happened:

In Brussels and London it became clear that "DG Sanco" (the European Commission Directorate General responsible for health and consumer protection) was deadly serious about its proposed Directive on "Unfair commercial practices". Indications at around the same time also made it clear that what many thought to be a much more sensible, pragmatic and practical European measure for promotion marketing in the single market was close to dead in the water.

It was in October 2001 that, as reported in marketinglaw at the time, not one but two apparently very significant documents were published by the European Commission on the issue of consumer protection/marketing law harmonisation.

One proposed a "Framework Directive" to promote "fair trading," whilst the other was a suggested Regulation designed to remove barriers to pan-European promotion marketing activity. The former was in very general, aspirational terms and looked to be a recipe for uncertainty and continued differences in local interpretation of innately vague concepts such as "fair trading". The other was in much more specific terms, for instance, introducing bans on some member state requirements for registration of prize competitions and introducing provisions going a long way to standardising prize promotion rules across Europe. At that time, all seemed set fair for the rapid adoption of the second measure, whilst the lack of specificity in the proposed Framework Directive boded ill for anything other than a long-winded passage through the EU law-making process.

However, in the eighteen months since then, all that has changed. Whilst the draft sales promotion regulation has encountered intense opposition from some EU member states, the Framework Directive has gathered momentum.

Searching still for the Holy Grail of unimpeded cross-border sales throughout the European Union, DG Sanco cites as one of its justifications for containing with this "Framework" initiative, the relative stagnation of cross-border sales to consumers between 1991 and 2002 throughout the EU. Whether consumers truly wanted to indulge to any significant extent in cross-border shopping did not seem to be an issue which had been tested.

Another motive appears to be the perceived need to "fill in the gaps" between existing Europe-wide consumer protection measures. Examples include the Directive dealing with misleading and now comparative advertising and the Distance Selling and E-Commerce Directives. On the other hand, what has so far been absent from much of the typically expansive verbiage that has come out of Brussels on this topic has been much in the way of specifics about the particular areas that are presently untouched by legislation of this kind. Also, some say that a Framework Directive based on protecting the economic interests of consumers and not businesses would be a relatively backward step, given the applicability of measures such as the misleading and comparative advertising Directive to both B2B and B2C advertising.

The basic idea of the Framework Directive is to introduce a "general clause prohibiting unfair commercial practices harming the economic collective interests of consumers".

The critical element of this would be a form of "reasonableness" test, through the establishment of a "benchmark consumer" in relation to whom any practice in focus has to be assessed. This benchmark would be the "reasonable consumer", but as ever there would be exceptions. For instance if a commercial practice were addressed to a group of vulnerable consumers, the "reasonableness" of the consumer would have to be assessed from the perspective of the average member of that particular group.

Having established a general clause, the plan is to "elaborate" on this by means of a "non-exhaustive number of unfairness categories". Such as "use of force, harassment, cohesion and undue influence".

Industry would be free and encouraged to draw up codes of conduct for particular sectors. Non-compliance with the code, which would have to conform to a benchmark set by way of the Framework Directive, would be prima facie evidence of an unfair trading practice and hence a breach of the Directive and local EU member state legislation implementing it.

There also still appears to be a considerable momentum behind the "country of origin/mutual recognition" approach being reflected in the Framework Directive. This would ensure that provided commercial practices coming out of one EU state conformed with that state's laws, then the business responsible for that practice should not be in fear of regulatory action in other EU member states into which that same activity was directed. However, there is still a long way to go on this, since recent comments from DG Sanco indicate that discussions amongst the member states so far are deeply split on the issue with only the UK, Luxembourg and Poland unreservedly in favour of a "country of origin" approach.

DG Sanco says that the discussions are continuing, but it is also now setting itself a very tight timetable. The current plan is to come up with a detailed Framework Directive proposal by the end of June 2003 at the latest.

As for the timetable which DG Sanco has set itself, the Advertising Association for one has serious doubts as to whether this is realistic given the apparently huge amount of background work that still needs to be done. All in all, not a particularly attractive state of affairs for European marketers, and particularly concerning since the draft Sales Promotion Regulation appears to be in real difficulty.